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Hedge Fund Favorites vs. Costco Wholesale Corporation (COST) In 2019

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Costco Wholesale Corporation (NASDAQ:COST).

Is Costco Wholesale Corporation (NASDAQ:COST) a buy, sell, or hold? The best stock pickers are taking a bullish view. The number of bullish hedge fund positions moved up by 11 in recent months. Our calculations also showed that COST isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In today’s marketplace there are several signals investors have at their disposal to size up stocks. A duo of the less known signals are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top money managers can outclass the broader indices by a significant amount (see the details here).

Warren Buffett of Berkshire Hathaway

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s review the latest hedge fund action regarding Costco Wholesale Corporation (NASDAQ:COST).

What have hedge funds been doing with Costco Wholesale Corporation (NASDAQ:COST)?

At the end of the third quarter, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from one quarter earlier. On the other hand, there were a total of 39 hedge funds with a bullish position in COST a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is COST A Good Stock To Buy?

Among these funds, Berkshire Hathaway held the most valuable stake in Costco Wholesale Corporation (NASDAQ:COST), which was worth $1248.5 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $874.5 million worth of shares. Two Sigma Advisors, D E Shaw, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Chilton Investment Company allocated the biggest weight to Costco Wholesale Corporation (NASDAQ:COST), around 3.98% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, setting aside 3.3 percent of its 13F equity portfolio to COST.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Renaissance Technologies, established the biggest position in Costco Wholesale Corporation (NASDAQ:COST). Renaissance Technologies had $133.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $17.4 million investment in the stock during the quarter. The following funds were also among the new COST investors: Parvinder Thiara’s Athanor Capital, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and Matthew Tewksbury’s Stevens Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Costco Wholesale Corporation (NASDAQ:COST) but similarly valued. These stocks are BHP Billiton Limited (NYSE:BHP), Accenture Plc (NYSE:ACN), Novo Nordisk A/S (NYSE:NVO), and Paypal Holdings Inc (NASDAQ:PYPL). This group of stocks’ market values are closest to COST’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BHP 21 800372 2
ACN 42 1120846 4
NVO 21 3007327 4
PYPL 95 4135931 0
Average 44.75 2266119 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.75 hedge funds with bullish positions and the average amount invested in these stocks was $2266 million. That figure was $3862 million in COST’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand BHP Billiton Limited (NYSE:BHP) is the least popular one with only 21 bullish hedge fund positions. Costco Wholesale Corporation (NASDAQ:COST) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on COST as the stock returned 45.4% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.

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